1943-­ KerLnePdeyt,e r, guidet oe conometIr ics A GUIDET OE CONOMETRICS This page intentionally left blank (except for this sentence, that is!). A GUIDET O ECONOMETRICS SIXTHE DITION PETERK ENNEDY SimoFnr asUenri versity �A Blackwell 'bP ublishing 200b8yP etKeern nedy © BLACKWEPLULB LISHING 35M0a iSnt rMeaeltd,Me An0 ,2 148-U5S0A2 0, 960G0a rsiRnogatOdox,nfo rOdX 42 DQU,K 55S0w ansSttornCe aertl,Vt iocnt,3o 0r5iA3au, s tralia 1ber igohfPt e tKeern ntedoby ei dentaistfi hAeeud t hooftr h Wiosr hka bse eans seirnat cecdo rwdiatnthch ee UKC opyrDiegshitag,nn Pdsa ,t eAnc1tts9 88. Alrli grhetsse rNvope ador.ftt h piusb limcaabytei r oenp rodsutcoeirdnaer, de trsiyesvtaoelrtm r,a nsmitted, ina nfyo rmo rb ya nmye anesl,e ctmreocnhiacnp,ih coatlo,c orpeycionrogdro,i t nhge rewxicseaespp, te rmit­ tebdy UtKh eC opyDreisgihagtnnP,dsa teAnct1ts9 8w8i,t htohpuert i poerr miosfts hipeou nb lisher. 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Firesdti tpiuobnl i1s9h7be9yMd a rtRionb eratnsCdoo nm pany Ltd SecoanndTd h ierddi tpiuobnlsib syBh leadc kPwuebllli Lsthde rs Fourtehd itpiuobnl i1s9h9e8d Fifetdhi tpiuobnl i2s0h0e3d Sixetdhi tpiuobnl i2s0h0be8yBd l ackPwuebllli Lsthdi ng 2008 LibroafCry o ngCraetsasl oging-Diant-aP ublication KennePdeyt1,e9 r4,3 - A gutioed ceo normiecPtse tKeern ne-d6yt.eh d . pI. cm. Inclbuidbelsi ogrreafpehriaecnniadcnl ed se x. ISB9N7 8-1-405(1h-a8r2d:5ca 8ol-vpk4ea. rp -erIS)B N9 718--4051-(8p2b:5ak 7l.-pk 7a. p er) 1.E conomeItT.ri itclse.. HB139.2K04058 3301.'05195-dc22 2007039113 Ac atalogufeot rhr tieiscit oaslrv eda iflrabotlmhBe er itLiisbhra ry. Seitn1 0.5.51p 1tT2 imes byN ewgIemna gSiynsgt (ePmL)st dC,h enInnadii,a Prinatnebddo uinntd h Uen itSetdao tfAe mse rica byS herBiodoaknIs n,c . Thpeu blipsohleiirtsc'ou ys s pee rmapnaepnfetrr om mi ltlhsoa pte raas tues tafionraebpslotelr iyc y, anwdh ihcahbs e emna nufacfrtoumrp eudlp pr oceusssiaencdgi da-nfedrl eeem eycn htlaorrine-free practFiucretsh.et rhmpeou rbel,ie snhseutrrh etashtt e e pxatp aenrcd o vbeora ursdeh da vmee t accepetnavbilreo nmentaslt aancdcarreddsi.t ation Fofru rtihnefro rmaotni on BlackPwuebllli vsihosiuniwrgte , b site: www.blackwellpublishing.com Contents Perafce x Dedication xii 1 Introduction 1 1.W1h aitEs c onoimcest?r 1 12. ThDeis turbTaernmc e 2 1.E3s timaanEtdse tsti omras 4 14. Gooadn Pdr efeErsrteidm ators 5 GeneNroatle s 6 TechniNcoatle s 10 2 CriteforrEi sat imators 11 21. Introduction 11 2.2C omputaCtoisotn al 11 2.3L eaSsqtru eas 12 2 2.4H ighRest 13 2.5U nbiasedness 14 2.6E fficiency 16 2.7M eaSnq aurEer ror 17 2.8A sympPtrootpieecsr ti 18 2.9M aximLuimk elihood 21 21.0M onCtaer Sltou dies 22 21.1Ad diUnpg 25 GeneNroatle s 26 TechniNcoatle s 32 3 TheC lassicalR eLgirneesMasorid oenl 40 3.T1e txboaoskC sa talogs 40 32. The AFsisvpuetm ions 41 v viC ontents 3.3Th OeL SE stimiantth CoeLr R M odel 43 GeneNroatle s 44 TechniNcoatle s 47 4 InterEvsatli mation andT esHtyipnogt hesis 51 41. Introduction 51 4.2Te stiaSn ign Hgylpeo tsht:eh tseT ie st 51 4.3Te stiaJn ogi Hnytp othtehFseT i esst: 52 4.4I nteErsvtailm faotarPi aorna mVeectteorr 54 4.5L RW,, a nLdM S tatistics 56 4.6B osottrianpgp 58 GeneNroatle s 59 TechniNcoatle s 67 5 Specification 71 5. 1I ntroduction 71 5.2Th rMeeet hodologies 72 5.3G enePrrailn cfioSprpl eeccsai tfiion 75 5.4M isspecTiesfitc/saDtiiaognn ostics 76 5. 5R 2A gain 79 GeneNroatle s 81 TechniNcoatle s 89 6 Violating AOsnseuW:mr potniRgoe ng resNsoonrlsi,n eaarnidt ies, Parameter Inconstancy 93 61. Introduction 93 6.2I ncoSrerotefI cn td epeVnaadrbeilnets 93 6.3N onlriinteya 95 6.4C hangPianrga mVealtueers 97 GeneNroatle s 100 TechniNcoatle s 160 7 ViolaAtsisnugm ptTiwoo:Nn o nzeErxop ecDtiesdt urbance 109 General Notes 111 8 ViolaAtsisnugm ptTihorneN eo:n spheDriisctaulr bances 121 81. Introduction 121 8.2C onsequences of Violation 131 8.3H eterosckietdya sti 151 8.4A utocorDriesltautrebda nces 181 8.5G eneraMleitzhoeofMddo ments 122 GeneNroatle s 132 TechnliN coates 192 9 ViolaAtsisnugm ptFioounrI :n strumVeanrtiaalEb sltei mation 137 9. 1I ntroduction 173 9.2T hIeV E stimator 141 9.3I VI ssues 144 Contevnitis GeneNroatle s 164 Technli cNaotes 151 10V iolaAtsisnugm ptFioounrM :e asuremEernrtoa rnsdA utoreesgsrio1n5 7 1.0l E rrioVnra sar biles 157 1.02A utgorreession 106 General Notes 136 TechniNcoatle s 176 11V iolaAtsisnugm ptFioounrS m:iu ltanEeqouuast ions 171 1.1I1n troduction 171 1.12I dentification 173 113S .ignle-EqMueatthioodns 167 1.14S ystems Methods 108 GeneNroatle s 118 TechniNcoatle s 186 12V iolaAtsisnugm ptFiiovMneu :l ticollinearity 192 1.2l I ntroduction 129 1.22C onsequences 193 1.23D etecMtuilntgin ceoalriltiy 149 1.24W haTtoD o 169 GeneNroatle s 189 TechniNcoatle s 202 13I ncorporEaxttirnagn Ienofoursm ation 203 13I.n1t roduction 203 1.32E xaRcets trictions 203 1.33S tochRaessttirci ctions 204 1.34P re-ETsetstitom ras 204 1.35E xtraInnefoorumsaa tnido nM SE 206 GeneNroatle s 207 Technical Notes 211 14T heB ayesAipapnr oach 213 14I.n1t roduction 213 1.42W haitas B ayesAinaansl iys? 213 1.43A dvantoaftg hBeeays e sAipapnr oach 216 1.44O vercoPmriancgt iCtoimopnlearisn't s 217 GeneNroatle s 220 TechniNcoatle s 226 15D ummyV ariables 232 1.5I1 n troduction 232 1.52I nterpretation 233 1.53A ddiAnngo tQhuearal tiiVtvaaerb ile 234 154I .nterwaictQthui anngt iVtaraitaibvlee s 235 Contents Vlll 1.55O bservatiDounm-mSipeesc ific 236 GeneNroatle s 237 TechniNcoatle s 240 16 QualitDaetpievned Veanrti ables 241 161D. ichotomousV arDieapbelnedse nt 241 1.62P olychotomouVsaa rbiDleepse ndent 244 1.63Or deLroegdi t/Probit 245 1.64C ouDnatta 246 General Notes 246 TechniNcoatle s 254 17 LimitDeedp endVeanrti ables 262 1.7 I1n troduction 262 1.72 T hTeob iMto del 263 173S. a mple Selection 265 17D.u4r ation Models 267 GeneNroatle s 269 TechniNcoatle s 273 18 PaneDla ta 281 181.I ntroduction 281 18.A2ll owfioDrni gff eIrnetnetr cepts 282 18F.i3x Veerds Ruasn dEoffme cts 284 1.84S hoRrutVn e sruLso ng Run 286 18L.o5n Nga,r rPoawn els 287 GeneNroatle s 288 TechniNcoatle s 292 19 TimSee riEecso nometrics 296 1.9I1 n troduction 296 1.92A RIMMAo dels 297 19V.A3R s 298 194E. rrCoorr roenMc otdiels 299 19T.es5t ifnoUgrn iRto ots 301 1.96C oiengtration 302 GeneNroatle s 340 TechniNcoatle s 341 20 Forecasting 331 201.I ntroduction 331 20.C2a uFsoarle castingM/oEdceolnso metric 332 20.T3i mSee rAineasl ysis 333 20.F4o raesctAicncgu racy 334 GeneNroatle s 335 TechniNcoatle s 342 Contents ix 21 RobuEsstt imation 345 21I.n1t roduction 345 212O. utlaineIdrn sf luOebnsteiravla tions 346 213G. uardAignagi nst Influential Observa3t4i7o ns 214A. rtiNfiecuirNaaellt w orks 349 215N. onparaEmsetttirimioacn 350 GeneNroatle s 352 Technical Notes 356 22 AppliEecdo nometrics 361 221.I ntroduction 361 22.T2hT een C ommandomfAe pnptlsEi ceodn ometrics 362 22.G3e tttihWnerg o nSgi gn 368 22.C4o mmMonis takes 372 22.W5h atP rdaoc tiNteietodoKn neorws? 373 General Notes 374 TechniNcoatle s 383 23 ComputatCioonnsaild erations 385 23.I1n troduction 385 23.O2p timizaiC nogm puvStieeaar r ch 386 23.E3s timIanttienvggirS aai ulmlsa tion 388 23.D4r awOibnsge rvfraotmAi woknwsaD risdt rtiibouns 390 GeneNroatle s 392 TechniNcoatle s 397 AppenAd:Si axm plDiinsgt riTbhuFeto iuonndsoa,fSt tiaont istics4 03 AppenBd:Ai lAxlb oVuatar nice 407 AppenCd:Ai P xr imoenAr s ypmtotics 412 AppenDd:Ei xxe rcises 417 AppendAinxs wEte:oEr vse n-NuQmubeesrteido ns 479 Glsoasry 503 Bibglriaophy 511 NamIen dex 563 Subject Index 573